If anything has become clear over the past two decades, it is that Nike (NYSE:NKE) is a long term winner. While other fashion brands have come and gone with often fickle fashion trends - think Abercrombie & Fitch (NYSE:ANF), Under Armour (NYSE:UAA), Fossil (NASDAQ:FOSL), or L Brands (NYSE:LB) Victoria's Secret - Nike simply hasn't. Nike stock has remained almost fad-proof.
For over two decades now, the company has stood firmly atop the secular growth athletic apparel market, and that has powered Nike stock to consistent gains in a long term window.
This will remain true for the foreseeable future for several reasons. Above all else, Nike is innovating way faster than all of its peers, leveraging technology to optimize its product creation strategy, and is bringing new, fresh, and exciting products to market with unprecedented pace.
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All of those things boost Nike brand among both professionals and amateurs alike, and maintain Nike as the premiere athletic apparel brand in the world.
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Those initiatives will also keep Nike on a winning path for a lot longer.
Every now and then, NKE gets slightly undervalued. See mid-2017. It also gets slightly overvalued from time to time. See mid-2018. Ultimately, those are just opportunities to add and trim. At the end of the day, Nike has risen a whopping 560% over the past ten years. Investors have every reason to believe a similar rally will unfold over the next ten years.
Thus, NKE is a long term buy-and-hold. Trim on big rallies. Add on big dips. But ultimately stick with NKE stock for the long haul.
### Nike's Innovation Is Firing on All Cylinders
If there's one thing that is most important in the apparel market, it is innovation.
If you innovate better and more quickly than anyone else, then you will consistently bring better and more exciting products to market. Better and more exciting products boost brand awareness and image. Boosted brand awareness and image attracts professionals and amateurs to your brand.
Revenues go up, so you have more money to spend on professional endorsements, which in turn attracts more amateurs, who bring in more money. It's a positive feedback loop that all starts with innovation.
Over the past two decades, Nike's innovation in the athletic apparel market has been unprecedented. This arguably remains more true today than it has even been before.
Case 1: Nike Adapt BB. Nike just launched its first ever self-lacing smart basketball shoe. It's a smart shoe which is controlled by and connected to a smart device, and tightens or loosens based on user preference. Think real world Back to the Future applied to basketball shoes.
Most other athletic apparel companies have yet to launch a self lacing shoe. Nike is applying this technology to performance shoes. Clearly, Nike is way ahead of the curve on self lacing technology. Regardless of if this footwear style becomes the norm or not, Nike's innovation advantage here illustrates just how forward-thinking this company is.
Case 2: Nike's Consumer Direct Sciences team. Nike recently expanded its partnership with big data and AI firm Gridsum (NASDAQ:GSUM) to enhance Nike's data driven marketing and sales approach in China.
This deal simply shows that Nike is much more than an athletic apparel company. They are a technology company that leverages big data analytics to influence and optimize product creation, assortment, and distribution.
Overall, it is clear that Nike is innovating where no one else is the athletic apparel space is innovating. Such innovation has powered huge gains and unprecedented stability in Nike stock over the past twenty years. It will continue to do so over the next twenty years, too.
### Nike Stock Will Remain a Winner
Here are the characteristics which have defined NKE over the past five years:
* Mid to high single digit annualized revenue growth.
* Stable operating margins in the low teens range.
* Forward P/E multiple around 25.
Those characteristics have been good enough to lead to Nike stock more than doubling over the past five years. In comparison, here are the characteristics which should define Nike stock over the next five years, given the company's innovation and leadership position in a secular growth athletic apparel market:
* Mid to high single digit annualized revenue growth.
* Slight operating margin expansion due to more premium product assortments.
* Forward P/E multiple around 30.
Essentially, revenue growth should be the same, and higher earnings growth potential through a more positive outlook on margins is compensated for in a higher forward P/E multiple.
Thus, Nike stock is supported by largely the same characteristics today as it has been over the past five years, a stretch in which Nike stock doubled. In this light, Nike stock looks ready to double again over the next five years.
### Bottom Line on NKE Stock
Given the company's unprecedented innovation, long history of market leadership, and track record of operational excellence, Nike stock is a long term winner.
Dips are merely opportunities to add. Rallies are opportunities to sell. In the long run, this stock will trend significantly higher.
As of this writing, Luke Lango was long NKE, FOSL, and LB.
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# L Brands Inc
### NYSE:LB
View full report here!
## Summary
* Perception of the company's creditworthiness is negative
* Bearish sentiment is low
* Economic output in this company's sector is expanding
## Bearish sentiment
Short interest | Positive
Short interest is low for LB with fewer than 5% of shares on loan. The last change in the short interest score occurred more than 1 month ago and implies that there has been little change in sentiment among investors who seek to profit from falling equity prices.
## Money flow
ETF/Index ownership | Neutral
ETF activity is neutral. The net inflows of $12.99 billion over the last one-month into ETFs that hold LB are not among the highest of the last year and have been slowing.
## Economic sentiment
PMI by IHS Markit | Positive
According to the latest IHS Markit Purchasing Managers' Index (PMI) data, output in the Consumer Services sector is rising. The rate of growth is strong relative to the trend shown over the past year, and is accelerating.
## Credit worthiness
Credit default swap | Negative
The current level displays a negative indicator. LB credit default swap spreads are near their highest levels for the past 1 year, which indicates the market's more negative perception of the company's credit worthiness.
Please send all inquiries related to the report to score@ihsmarkit.com.
Charts and report PDFs will only be available for 30 days after publishing.
This document has been produced for information purposes only and is not to be relied upon or as construed as investment advice. To the fullest extent permitted by law, IHS Markit disclaims any responsibility or liability, whether in contract, tort (including, without limitation, negligence), equity or otherwise, for any loss or damage arising from any reliance on or the use of this material in any way. Please view the full legal disclaimer and methodology information on pages 2-3 of the full report.

On January 10, L Brands (LB) reported sales of $2.48 billion for the five weeks ended January 5, 2019. L Brands’ net sales were lower than the $2.52 billion it reported for the five weeks ended December 30, 2017, which led to a 4.4% drop in the stock price yesterday.

Retailers this week, and especially Thursday, were having a tough go of it, particularly Macy's Inc. were down more than 4% after the company said that net sales during the holiday season fell below analysts' expectations. shares fell 4.5% after reporting earlier in the week that holiday season same-store sales fell 3.5% year over year.

L Brands Inc. shares fell 7.6% in Thursday trading after the Victoria's Secret parent company reported a sales decline and said the merchandise margin rate for that lingerie brand was down "significantly" due to higher promotional activity. Sales for the five weeks ending Jan. 5 totaled $2.477 billion, down from $2.516 billion last year. Nonetheless, analysts are bullish that the steps the company have taken, like the sale of its La Senza brand, and the ongoing shifts at the company will yield positive results. "Business trends should eventually improve, and L Brands is a share leader in an attractive category with strong global runway," wrote Cowen analysts, who rate L Brands shares market perform with a $30 price target. "We are most hopeful for initiatives around real estate since U.S. store count remains at an all-time high (which is nearly unheard of for legacy retailers today) and high-cost flagships are likely a meaningful drag on profitability," wrote Wells Fargo analysts, who would also like to see changes to the international business. Analysts are confident that these changes alongside new leadership at Victoria's Secret and Pink will drive an inflection in fiscal 2019. Wells Fargo rates L Brands stock outperform with a $45 price target. "We view L Brands as a compelling story led by an experienced, blue-chip management team focused on the right key initiatives able to drive meaningful multi-year runway ahead," wrote Wedbush analysts. They rate L Brands stock neutral with a $29 price target. L Brands shares have taken a 46% nose dive over the last year while the S&P 500 index is down 6.2% for the period.

Fourth-quarter updates are painting a mixed picture of the holiday shopping season for retailers. Target On Track For Strongest Comps In 13 Years Target Corporation (NYSE: TGT ) reported comp growth of ...

On January 10, L Brands (LB) stock fell 8.2% as of 9:58 AM EST following the announcement of its sales data for the five weeks ending January 5. The holiday season is crucial for retailers. Retailers earn most of their yearly revenues during the holiday season.

What You Can Expect for L Brands in 2019
(Continued from Prior Part)
## Margins numbers
For the first three quarters of 2018, L Brands’ (LB) gross margin contracted by 240 basis points to 35.0% due to the lower gross margin at Victoria’s Secret. L Brands has seen a deceleration in its merchandise margins for Victoria’s Secret, mainly due to higher promotions. However, Bath and Body Works’ gross margin improved for the first three quarters of 2018 due to higher merchandise margins and leverage achieved in buying and occupancy costs.
However, selling, general, and administrative (SG&A) expenses have risen in 2018. For the first three quarters, SG&A expenses rose 14.5% year-over-year or YoY. It’s facing higher selling expenses at Bath and Body Works due to increased sales volumes and higher wages. Expenses are also rising due to expansion in China. As a percentage of sales, SG&A expenses rate expanded by 180 basis points to 29.7%.
Due to higher expenses, operating profit decreased 41.0% YoY to $437.3 million. Operating margin shrank by 430 basis points to 5.2% for the first nine months of 2018.
## EPS numbers
As a result, L Brands EPS for the first three quarters of 2018 was $0.37, decreasing 66.7% YoY. Higher expenses and a substantial decrease in other income dented the bottom-line performance in 2018 despite lower taxes.
In the fourth quarter, L Brands’ management expects its EPS in the range of $1.90–$2.10. However, for 2018, its adjusted EPS are estimated to be $2.60–$2.80.
Analysts forecast fourth-quarter adjusted EPS to decline 4.3% to $2.02. For 2018, Wall Street analysts expect L Brands adjusted EPS to fall 15.6% YoY to $2.70, and for fiscal 2019, adjusted EPS are projected to increase 1.1% to $2.73.
## L Brands’ dividend plans
L Brands slashed its dividend by 50% in November. L Brands plans to channel the $325 million in savings from the reduction in dividend toward deleveraging its balance sheet. The annualized dividend now stands at $1.20.
L Brands dividend yield was 8.5%, based on its January 8 closing price of $28.20. The dividend yields for Gap (GPS), Abercrombie & Fitch (ANF), and American Eagle Outfitters (AEO) stood at 3.8%, 3.8%, and 2.8%, respectively.
Browse this series on Market Realist:
* Part 1 - What Wall Street Recommends for L Brands
* Part 2 - Comparing L Brands’ PE Multiple with Peers’
* Part 3 - Will L Brands’ Top-Line Performance Impress in 2019?

What You Can Expect for L Brands in 2019
(Continued from Prior Part)
## Sales to improve
L Brands (LB) is one of leading intimate apparel manufacturers and distributors in the United States. Its major brands include Victoria’s Secret and PINK.
For the fourth quarter of 2018, Wall Street analysts expect L Brands net sales to rise 1.9% YoY (year-over-year) to $4.91 billion. For fiscal 2018, analysts forecast L Brands net sales growth of 5.3% YoY to $13.30 billion. However, for 2019, analysts expect sales to report an increase of 1.4% to $13.48 billion on a YoY basis.
## What’s in store for L Brands in 2019?
Strength in the Bath & Body Works brand has been cushioning its top line. Comparable store sales growth for L Brands has been positive in the last three quarters of 2018 mainly due to Bath & Body Works.
It’s looking to re-enter certain categories, including swimwear, footwear, and eyewear, to boost its top line. It has discontinued its Henri Bendel operations and found a suitable buyer for its loss-making La Senza lingerie brand.
L Brands is also developing its beauty business, which comprises fragrances and mists. Sales also could to benefit from momentum in its digital business.
However, the troubled Victoria’s Secret and PINK businesses are a sore point for L Brands. Victoria’s Secret was once the ultimate destination for lingerie shopping for American women. Though it still commands a big share of the US lingerie market, a surge in the body positivity movement and the demand for comfortable lingerie has severely affected sales. Also, declining traffic at malls has added to the troubles.
American Eagle Outfitters’ (AEO) Aerie brand’s success underscores these shifting trends. Aerie’s focus on a wide range of sizes, hiring plus-sized models and not photoshopping its ads has worked wonders. The Aerie brand is expected to top $1 billion in revenue in the near term. Apart from Aerie, other retailers who are also embracing this body positivity trend include Lively and ThirdLove.
## Expectations for peers
For fiscal 2018, analysts expect Abercrombie & Fitch (ANF) to report sales growth of 2.2% YoY to $3.57 billion. For American Eagle Outfitters’ fiscal 2018 Wall Street analysts project revenue growth of 6.4% YoY to $4.04 billion.
Continue to Next Part
Browse this series on Market Realist:
* Part 1 - What Wall Street Recommends for L Brands
* Part 2 - Comparing L Brands’ PE Multiple with Peers’
* Part 4 - A Look at L Brands’ Margin and Bottom-Line Expectations

Victoria's Secret parent L Brands Inc. said Thursday same-store sales were flat in December compared with the year-earlier period. Net sales edged down to $2.477 billion from $2.516 billion. For the 47 weeks ended Jan. 5, same-store sales rose 3%, while net sales rose to $12.457 billion from $11.592 billion a year ago. The retailer is now expecting full-year adjusted per-share earnings to come in toward the high end of its $1.90 to $2.10 range, excluding a pretax charge related to the sale of La Senza of about $80 million, or 15 cents per share. Shares rose 1.6% premarket, but are down 41.6% in the last 12 months, while the S&P 500 has fallen 5.9%.